Alienation Clause
Definition and meaning of Alienation Clause in real estate.
An alienation clause is a provision in a mortgage contract that requires the borrower to pay off the remaining loan balance in full if the property is sold or transferred. This clause prevents the new buyer from assuming the seller's existing mortgage without the lender's approval.
In more detail
Also known as a due-on-sale clause, this provision protects lenders by ensuring that loans are repaid when the underlying collateral changes hands. It allows lenders to either collect their funds or renegotiate the loan terms and interest rates with a new borrower. If a seller transfers the property without notifying the lender, the lender can declare the loan in default and initiate foreclosure.
Certain transfers, such as passing property to an heir or transferring it to a living trust, are protected from this clause under federal law. Home buyers should verify whether their mortgage has this clause, though almost all modern conventional loans do.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Due-on-sale clause |
| Purpose | Prevents loan assumption by a new buyer without lender approval |
| Protected transfers | Transfers to heirs, spouses, or living trusts under federal law |
A homeowner decides to sell their house, and because of the alienation clause in their mortgage, they must use the proceeds from the sale to pay off their remaining loan balance at closing.
Frequently asked questions
Can a lender waive an alienation clause?
Lenders can choose to waive the clause to allow a mortgage assumption, but they typically charge fees and may adjust the interest rate to current market levels.
Do all mortgages have an alienation clause?
Most conventional loans contain this clause, but government-backed loans like FHA and VA loans are generally assumable and do not have restrictive alienation clauses.